SBP allows advance payments for imports

KARACHI: The State Bank of Pakistan (SBP) has relaxed the trade regime by allowing advance payments or remittances for import of goods, which may increase outflow of dollars from the country.

The State Bank issued a circular on this subject and invited all banks to circulate this new development regarding the advance payments without prior approval of SBP.

“Authorised dealers are henceforth allowed to effect import advance payment with appropriate due diligence, without prior approval of SBP, against irrevocable letters of credit or invoices, up to 100 per cent of the value of letter of credit or invoice, as the case may be,” said the circular.

A banker said the circular provides an opportunity to importers for paying advance remittances against their goods without opening of a letter of credit. This payment could be up to 100 per cent, which means an importer could pay 20 or 30 per cent more against goods.

Exchange companies sold $3bn to banks in seven months, says Paracha

Importers should, however, buy dollars from banks, as per the current practice. The State Bank has relaxed imports, but importers find it difficult to open a letter of credit as banks do not cough up dollars easily.

Under the current practice, banks have to arrange dollars before opening of an LC.

Prior to this practice, the State Bank had allowed importers to arrange dollars from any source and open LCs. But the importers’ rush for dollars from the open market inflated the demand as well as prices.

Dollar rates shot up and a black market emerged to provide the greenback to importers. This encouraged currency dealers to charge as much as Rs340 in the open market and Rs307 in the inter-bank market.

The situation drew attention of the government. A crackdown on the business of illegal currency followed while the central bank changed the rule and asked banks to arrange dollars before opening an LC.

This had an immediate impact and the dollar fell as low as Rs279.50, on Wednesday. The revised instructions are applicable with immediate effect.

Forex market

Exchange companies have sold $3 billion to banks during the current fiscal year, providing significant help to keep the market liquid.

“During the last seven months, July-Jan, exchange companies have sold about $3bn in the inter-bank market. After a long time we were able to sell such a large amount,” said Mr Zafar Paracha, General Secretary of the Exchange Companies Association of Pakistan.

He said inflows had shot up since the crackdown on illegal currency business began.

Jameel Ahmed, the State Bank governor, told the media last week the SBP had been buying dollars from the market. Bankers maintain that inter-bank market is a major source of dollars for the central bank as it helps it to keep the reserves around $8bn.

The open market reported the dollar rate unchanged at Rs280.86. The difference between the interbank market and the open market is about Rs1.36 — within the limits spelt out by the IMF.